With liquidity still an issue, small and mid-size upstream oil and gas companies continue to feel a disproportionate impact of the ongoing financing squeeze from the debt crisis and the uncertainty in the

capital markets.

While lenders and debt investors continue to show a willingness to provide capital to larger oil and gas companies, the same cannot be said for small and mid-sized upstream companies, those with leaner operating cash flows and a smaller asset base. Compounding the effect of the crisis, Basel III regulations are forcing lenders to deleverage and recapitalize, which will continue to leave, for the foreseeable future, many small and mid-sized companies in need capital-starved.

Against this backdrop, small and mid-sized oil and gas companies are facing the tough choices of curbing or postponing their development programs, or being acquired. In such a capital-constrained environment one would find the thought of a pool of capital sitting on the sidelines yet ready to be deployed and increasingly looking for opportunities, rather surprising.

Nonetheless, that pool of liquidity indeed exists, and it is large, available, and growing at a fast pace. The reason for it being largely untapped is that few have found the key to unleash it. That pool of capital is capital from Islamic financial institutions, and the key to unleashing it is the structuring of financial instruments that comply with these investors'

requirements.

During times of abundant liquidity, the structuring of a non-conventional financial instrument would be perceived by issuers and borrowers as an unnecessary complication and almost entirely disregarded. These days such a large pool of liquidity cannot be overlooked.Money looking for yield The term Islamic financial investor refers to an entity that conducts its business in a way that is consistent with Islamic law (Shariah).

Islamic finance is in many ways similar to conventional finance with one major difference that the financial product cannot be in conflict with Shariah law.

Many of the prohibitions dictated by Shariah law concerning the investment in industries that promote vices (for example: alcohol and gambling) or are related to other "impure" activities have become well-known. Also well-known is the ban on receiving and paying Riba, or interest.

Assets held by Islamic financial institutions are estimated by Standard & Poor's to far exceed US$1 trillion. This sizable figure is also growing at a very rapid pace. It is estimated that this market is growing at a compounded annual growth rate of roughly 15% to 20% percent per year and is poised to reach US$4 trillion in size by the end of the decade.

Islamic financial institutions are mostly concentrated in two geographic areas: Southeast Asia (Malaysia, the pioneer in this market, and Indonesia) and the Middle East (particularly Saudi Arabia, the UAE, Kuwait, and Qatar). A substantial trade surplus, derived mainly from hydrocarbon exports but also due to changing demographics, has fueled deposits into these financial institutions in recent years. Moreover, as Islamic financial institutions grow larger in size and recognition, Standard

& Poor's estimates that 20% of banking customers will prefer an Islamic financial product over a conventional one with a similar risk-return profile.